CFA Practice Question

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CFA Practice Question

Which of the following statements is false?

A. The NPV method states that investment projects with positive NPV should be accepted.
B. The IRR method states that accepting projects with IRRs that exceed their cost of capital decreases shareholders' wealth.
C. The NPV and IRR criteria always lead to the same accept/reject decision when projects are independent and each project has one IRR.
D. The NPV and the IRR can lead to different accept/reject decisions.
Correct Answer: B

When the IRR exceeds the cost of capital, the return on the project is higher than the cost of funds; therefore, shareholder wealth will increase.

User Contributed Comments 4

User Comment
smillis For C -- "always the same": what if the project sizes are different...couldn't the IRR indicate reject with a positive NPV.
Charlie For independent projects, the NPV and IRR methods make the same accept or reject decisions, irregardless of project sizes.
rt2007 what about multiple IRR - they can still be there even when the projects are independent ? So isnt 'C' also false ?
vikram59 The statement states one IRR
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